Online Banks: Lower Costs And Little Sacrifice

Besides being a great place to waste hours upon hours of time, the internet is a great source of cheap music, cheap movies and cheap banking. Internet banks are offering more for less to people who are brave enough to give up the comfort of a brick and mortar branch in their neighborhoods. In this article, we'll look at whether an online bank is the best choice for you and why.

Low to No FeesInternet banks offer some of the lowest fees in banking. This can be done because the online banks don't have the same level of costs as traditional banks. If you bank with a nationwide brick and mortar bank, your fees are paying for the cost of staffing across the nation, advertising and handling fees.

With an internet bank, most of that overhead is non-existent or paid for with different revenues, allowing for the reduction of fees.

Automated SavingBecause internet accounts often cost you nothing in fees, you can open as many accounts as you need. Although this might sound eccentric, it's a powerful tool for personal finance. You can set up a savings account for a car, your future house and your retirement, automatically allocating the percentage you want to go into each. Splitting your savings according to financial goals and being able to easily mark the progress is more satisfying, and may increase your motivation to stick to your financial plan. With a traditional bank you usually lose money opening extra accounts because each one has fees, minimum balances and so on. This forces you to group your savings and try to mentally tally how much is being allotted to each goal – not nearly as simple or as satisfying.

Higher Interest and Lower Lending RatesAside from fees, the limited costs of internet banks also allow them to pay out better interest rates. Whereas most traditional banks offer less than half a percent on a designated savings account, internet banks offer significantly more for savings and pay some interest for a regular checking account to boot. On the flipside, internet banks also tend to have lower interest rates on small loans and are steadily expanding the credit vehicles they offer. You can get a credit card, line of credit, car loan and even a mortgage through your internet bank at decent rates, if your credit rating is solid. (Have a lot of debt? Read Debt Consolidation Made Easy to help you get out of debt faster.)

Quick AccessOne of the biggest attractions of internet banks is the level of online accessibility. Many traditional banks underestimated the demand for online services before, but now almost every bank has some form of online banking. Internet banks, by their nature, have above average online services. You can check your balance daily, hourly, or every minute should you choose. You can set up online bill payments, apply for loans, buy fixed-term investments and handle transfers between accounts. Simply put, you can do everything you'd normally do at a branch bank from the comfort of your own home.

DrawbacksBefore we get too excited about internet banks, there are a few drawbacks that shouldn't be ignored. The most common complaint about internet banking is that making a deposit can be slow. If you are not on a direct deposit payroll, the chances are good that you will have to mail your checks or use an ATM. This means your funds will take time to make it into your accounts, and even then they may be subject to a hold. Generally speaking, a week or two wait isn't the end of the world – provided that you're not living paycheck to paycheck. There are other ways to get around this problem, such as opening an account at another bank just for transferring deposits, but it remains a sticking point for many people used to having immediate access to their paychecks.

Another drawback is that you can't walk in for a face to face meeting with a loan officer. Although the loan process has been highly automated at traditional banks as well, your personal relationship with the loan officer can make a difference. With internet banks, your credit is either good enough or it isn't – there's no allowance for a nice smile. (Read Lending From A Loan Officer's Perspective to learn how a loan officer thinks.)

ConclusionIt takes time for people to get comfortable with new innovations, and this has held true for internet banks. These banks offer a mix that makes them very attractive to people looking to save on fees, as well as for those who want to save up money. Whereas the lack of a physical location and face-to-face staff might turn off the older generations, the younger, tech-savvy generation can directly benefit from banks that don't have the overhead costs that traditional banking entails. Young or old, if you can reconcile yourself with the drawbacks, an online bank is a great way to sock away cash and handle your daily banking needs.